On 1 June 2020, the Ministry of Justice announced that the Lord Chancellor has reviewed the interest rates of Court Funds Office (CFO) Special Accounts and Basic Accounts. With immediate effect both of the rates have been revised significantly downwards, based on the Bank of England’s reduction in the Base Rate, due to the impact of COVID-19. The Bank of England lowered the Base Rate to 0.1% on 19 March 2020 and announced on 7 May 2020 that this historically-low rate would remain in place until further notice.
The Ministry of Justice have confirmed the new rates are:
- The Basic Account will now pay 0.05% (down from 0.1%
- The Special Account will now pay 0.1% (down from 0.5%)
The most notable practical effects of this change for personal injury practitioners are two-fold:
Firstly, because interest on special damages can be claimed at half the Special Account Rate on losses which continue up until the date of judgment, the applicable interest rate on said damages is now only 0.05%.
Secondly, children and protected parties - for whom approval of the court is required for settlements reached for their claims under CPR 21 – will be affected by the interest rate reduction. The court’s role in ensuring the funds are protected and invested for the benefit of the child or protected party may now extend to views taken by members of the judiciary as to whether the interest rate is sufficient. Given the rate of inflation far out-strips the new interest rate, the value of the funds invested in the Special Account would inevitably decline. The effects of this erosion would be starker for younger Claimants, whose general damages might be invested in the CFO for several years.
As a result, judges might ask more probing questions as to the destination of any general damages awards which are approved. Personal injury practitioners will need to advise their clients as to the different possible accounts into which the funds may be invested. They will also need to anticipate greater potential judicial reluctance in ‘waving through’ requests for investment into the CFO as standard.
It is worth noting that in the previous 2019/20 tax year, the former limit on subscriptions (payments-in) to Junior ISAs was £4,368.00. The limit during the current 2020/21 tax year (from 6 April 2020 to 5 April 2021) is now £9,000.00. This is a large-enough limit to now cover an extensive, and larger, number of personal injury claims. For children born between 2002 and 2011, they may have Child Trust Funds instead, the funds in which can be transferred to Junior ISAs. Such accounts offer considerably more competitive rates of interest compared with the newly-announced rate for CFO Accounts.